Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips

Accelerating adoption of GM crops through a trade liability regime

<Or how to fence-out Europe in the trade of GM products>

The story so far

Smyth, Kerr & Phillips—a trilogy in 4 parts:2009: rent seeking by producers supplemented by consumer and citizen protectionism2010: scale and scope of the problem2011: Managing Trade in Products of Biotechnology: Which alternative to choose—science or politics?

CPB Article 26.2 discussions

First best solution: negotiate

• Locus of SEC discussions/processes:– CBD, Art. 8j, traditional knowledge– ITPGR, Art. 9, farmers rights; Art. 13, benefits

sharing– CPB, Art 26.1, diversity; Art 26.2, socio-economic

considerations– WTO, Art 20, SPS Art. 5.3, risks to plants and

animals take into account economic factors and TBT

Second best solution: compensate

• Paarlberg (2008) concludes fear of market loss at root of reluctance to adopt

• Failures happen: LL 601, CDC Triffid• 2 forms of compensation fund:– long-term, self-sustaining: funded by premiums

from the purchase of insurance contracts (i.e. crop insurance)

– short-term specific incident: created and funded by governments, such as for natural disasters

• DK has fund for those affected by the production of GM crops (Smyth et al. 2010)—yet no GM production yet

• 'The Compact' is an industry-funded scheme, launched in 2010 by the leading firms, agrees to compensate any state that can prove biodiversity damage due to the release of a LMO (CropLife International, 2010).

Ex ante commitments best?

What needs indemnifying?Total African Exports?

US $ Millions

African corn & cotton exports to EU? ($US Millions)

Size of the ‘at risk’ trade

• Total Africa-EU trade in commodities with GM varieties (corn/cotton) less than US$10M in 2010—50% lower than in 1995

• So, if US$10 million trade is rejected likely cost is marketing and transport to next best market—10% or $1 million?

African banana exports to EU? ($US million)

04/20/23 9

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cameroon 42 45 67 66 65 63 58 81 70

Ghana 4 4 .6 2 3 15 42 13 10

Ivory Coast 62 63 76 85 74 89 82 98 100

Uganda .06 .02 .04 .08 .16 .3 .6 .9 .3

Total 108 111 144 153 142 168 183 192 179

Potential maximum $ requirement

• African trade in bananas worth more than $200 million per year

• GM bananas approaching (Kikulwe 2010)• If all banana’s rejected, cost could rise to

US$20+US$1M = US$21M• Unlikely all product would be rejected at once

—so US$21M is worst case—US$10-11 million most likely

04/20/23 10

• Type of fund? Long-term or short term? Needs to be credible, so long-term, funded

• Who pays? – Biotech companies: they earn rents– Farmers: they benefits from accelerated research– NGO (esp. Gates, World Bank, et al) concerned

about food security– Governments: food security and technological

change all priorities

Type of a fund

• Long-term, funded: – Amortized over some set period (say 15-30 years

until full acceptance) – Endowed: If the likely annual liability is US$10-12

million, a fund of US$600M

• $600 million could be raised by:– 3-year, $1.00/acre levy on GM crops in Canada,

US, Australia – Shared four ways?

Dimensions of a fund

• Levy 25 cents on see sales then each other partner would match based on that data

• Process:– Base would be binding trade contract with EU– RASFF would trigger the event– Onus on African to find alternate market—new

contract would determine compensation– Need to avoid fraud, moral hazard, rent seeking Residual could be used for R&D on food

Administration

• Global food security will require sustained R&D—GM crops are likely to been continually needed

• In absence of first-best negotiation, second-best market solutions offer an alternative

• The benefits of facilitating diffusion and adoption positively match the moderate costs of funding a liability system.

Conclusions

Stuart J. Smyth, William A. Kerr and Peter W.B. Phillips

Accelerating adoption of GM crops through a trade liability regime

<Or how to fence-out Europe in the trade of GM products>